METALS-Copper ends lower on dollar rally, outlook healthy

* Tin hits six-month high (Changes headline, recasts with New York closing price and analyst comments; adds NEW YORK byline/dateline)

By Chris Kelly and Pratima Desai

NEW YORK/LONDON, Dec 17 (Reuters) - Copper prices lost more than 2 percent of their value by the close on Thursday as a rallying dollar pressured values, but analysts said a healthier global demand outlook was expected to fortify sentiment and prices.

Copper for March delivery HGH0 on the New York Mercantile Exchange’s COMEX division dropped 7.75 cents, or 2.4 percent, to settle at $3.1280 a lb, after dealing between $3.1180 and $3.2045.

On the London Metal Exchange (LME), benchmark copper MCU3 closed at $6,870 a tonne, down $169 from the close on Wednesday.

The dollar surged to a three-month high against a currency basket after the Federal Reserve voiced growing optimism about the health of the U.S. economy, while the euro tumbled on worry about Greece’s fiscal health. [USD/]

“The market is very sensitive to some of the events going on in Europe, with respect to the credit and quality problems in Greece,” said Steve Platt, futures analyst with Archer Financial Services in Chicago.

“It certainly could feed back into the copper and be a real limiting influence in terms of upside movement,” he said.

However, the damage from the dollar has partly been offset by improving economic data from the United States, the world’s largest economy, highlighted in a statement from the Fed on Wednesday, and expectations of higher demand. [ID:nN16119711]

“For metals, the uptrend is still very much in place,” said analyst Gayle Berry at Barclays Capital, adding the upbeat economic data over the past couple of weeks has raised the prospects for metals.

A higher U.S. currency makes dollar-denominated metals more expensive for holders of other currencies. Even though some analysts think the dollar will rise further, fundamentals are expected to play a bigger role in coming months.

IGNORING INVENTORIES

Copper prices are up about 125 percent this year, despite a bearish backdrop of a growing supply base. Inventories of the metal used in power and construction in LME warehouses stand at 474,575 tonnes — a gain of about 85 percent since the middle of July and the highest since April.

Aluminum stocks hit a record high above 4.637 million tonnes, nearly double the levels seen at the start of 2009.

But prices of the metal used widely in transport and packaging are up about 45 percent this year because about 70 percent of LME stocks are tied up in financing deals until May and so are not available to the market. [ID:nGEE5B20OB]

Also a plus are canceled warrants — material already earmarked for delivery — at around 200,000 tonnes.

“Though it’s not available there’s a massive stock overhang, a capacity overhang and the outlook is for a large aluminum market surplus over the next few years,” said Max Layton, analyst at Macquarie.

Tin prices bucked Thursday’s softer trend in metals and and rose to their highest in six months at $15,820 and closed $275 higher at $15,775 a tonne.

“We’ve seen a rapid increase in tin stocks, but recently that rise has come to halt and they’ve actually begun to fall,” Berry said. “Also the price spread between China and London is holding at a sizable premium, telling that Chinese demand is doing pretty well,” she said.

Tin stocks are currently at 26,400 tonnes, down only about 500-600 tonnes from the seven-year high hit in November. But LME data shows between 80 percent and 90 percent of the stocks are held by a single dominant position. <LME/WHD>

Nickel MNI3 closed at $17,100 a tonne from $17,500 at the close on Wednesday, aluminum MAL3 at $2,220 from $2,276 and zinc MZN3 at $2,391 from $2,434. Battery material lead MPB3 traded at $2,359 a tonne from $2,410.

For a story on a possible bid by Deutsche Bank for RBS Sempra to expand its commodities involvement, click on [ID:nLDE5BG0T9]